VC Perspectives from a Former Entrepreneur – Jeff Bussgang

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TheFunded.com and Aretha Franklin

There’s a new VC-entrepreneur newsletter that has been getting a lot of attention lately called TheFunded.com. The Wall Street Journal had a profile of it last week and I find more and more entrepreneurs and VCs talking about it.

The concept is quite simple. It’s a bit like what TripAdvisor is to travelers – entrepreneurs go online and report on their impressions of working with this VC or that one and the reviews are broadly posted to the community.Why is this gossip column cum feedback site so popular? With a nod to Aretha Franklin, I think it simply comes down to one word. RESPECT. Entrepreneurs want to be treated with respect. As the holders of the money and, often, power, VCs are often labeled as arrogant know-it-alls – one of the most consistent criticisms you hear in the industry and see from the posts. TheFunded.com provides an open counter-balance, requiring VCs to be on their best behavior, else they are “called to carpet” in a semi-public forum by entrepreneurs. Can anyone say: VC accountability?

Why are VCs often arrogant? Is that what they teach us at VC breeding schools? I think some of it is just the nature of the business. As I mentioned in my post “Dr. Seuss and The Land of No”, VCs have the job of saying “no” hundreds of times for every “yes” that they fund. To be efficient, they are trained to say “no” quickly and not waste time on projects they simply don’t like or don’t believe in. Whether you believe in a project or not is such a subjective standard, that it can always be open for debate and argument. But VCs can’t afford to have debates and arguments about projects they don’t like, they must quickly, unemotionally move on to the next one.

Entrepreneurs, on the other hand, are emotionally attached to their projects and wired to believe that what they are working on is the absolute best thing going on – after all, they chose to work on it at the expense of every other new start-up or job they could have pursued. Thus, it is hard for them to contain their natural enthusiasm over why what they’re doing absolutely deserves to get funded. And nothing is more frustrating for a “walk through walls” entrepreneur than to be dismissed by a VC, no matter how graciously.

Many VCs find it particularly hard to provide the follow-up “no” (should I call? Leave a voice mail? Send an email? How to make it more personalized? But if I spend all day explaining to entrepreneurs why I’m saying “no”, I’ll never have the time to get to “yes”). On the other hand, entrepreneurs take particular offense if the follow-up “no” is curt and impersonal. It’s a bit of a joke on both sides of the fence. “Dear X, thank you for your time, but we are not going to pursue the investment opportunity at this time. Best of luck and keep in touch. When you are worth billions, we will post you on our ‘missed deals’ website”.

All joking aside, the tension between the two world views of the skeptical VCs and the optimistic entrepreneurs is inevitable. You see this tension playing out in board rooms and pitch meetings every day. To be clear, though, it’s a healthy tension. If it weren’t for the walk-through-walls optimistic entrepreneurs, companies would never get started. And if it weren’t for the cynical, blasé VCs, a lot of precious capital would be inefficiently wasted on tilting at windmills.

The trick, therefore, is for VCs to simply treat entrepreneurs with R-E-S-P-E-C-T. That’s all entrepreneurs are askin’ for. Just because a VC may not like the idea, or even the person hawking the idea, doesn’t mean they shouldn’t treat them with decency and respect. On the flip side, the entrepreneurs should remember that it’s the VCs job to sift through hundreds of opportunities and spend time only on very few. If it’s not a good fit for them, move on. That’s why TheFunded has struck a chord.

13 thoughts on “TheFunded.com and Aretha Franklin”

It is amazing that while being paid and funded to run a company, he had the time to start and operate this venture. Any entrepreneur or executive at a startup knows that to be successful you need to give all your time, energy, and focus to building the company. The fact he was doing this on the side is acknowledgment he was cheating the company, the company’s employees, and his investors.

i think a lot of people on the entrepreneur side mistake saying no for arrogance. managing millions of dollars of someone else’s money is a huge responsibility that demands extraordinary prudence – frankly, i marvel that vc’s are as patient as they are with rathole copycat video sharing sites and the like.

The best post on handling this delicate balance of saying “no” as a VC is Fred Wilson’s take: http://avc.blogs.com/a_vc/2005/05/vc_cliche_of_th_3.html
I think it strikes the right balance… a task which is incredibly hard to acheive in something so emotional for entrepreneurs (as you accurately point out).

Same logic applies to startups competing for a VC’s time and attention. What IS different is this…. No one knows if a startup will be successful no matter who it is. VC firms that continue to raise money are by definition meeting market demands of success.
LP’s are the primary customer. By the way, LP’s don’t just provide funding capital to VC’s to deploy — they pay the overhead, salaries, etc.
Not recognizing the differing incentives and objectives is precisely the kind of thing that leads to conflict.

The real customer of the VC is the Entrepreneur.
1) Limited Partners will line up with money in hand if the VC has a stellar track record. Raising $$ is not the problem for a VC fund – being successful is.
2) If you have a fundable idea/company/etc. it is logical to assume that more than 1 VC would be willing to fund your idea/company/etc. Therefore, the VC should consider his/her fund in competition with other VCs for the best deals/people.

Two things worth remembering….
1) Customers pay the bills in this world. Entrepreneurs are not the primary customer for a VC; LP’s are. How do start-up bills get paid? VC’s. Who’s the customer?
2) Imagine the uproar if VC’s started / contributed to a site rating the entrepreneurs and their startups! Imagine the lawsuits and cries of how unfair it all is!
Fact is, too many VC’s are rude. Power corrupts, remember? And the corollary? Ever meet an entrepreneur with prior substantive success or a strong backer already in-pocket?
People are people.

You write,”Why are VCs often arrogant? Is that what they teach us at VC breeding schools? I think some of it is just the nature of the business.”
It is not the nature of the business.
It is the nature of the ill bred – the arrogant – the self important – the really, really rude.
There is absolutely no excuse for bad form and bad behavior. It has nothing to do with “saying no”.
It has to do with being prompt, paying attention, not babbling self indulgent crap . . . .

Jeff Bussgang had a good post today about the tension between VCs and entrepreneurs which sometimes lead to VCs being branded as arrogant. There is no question that many VCs treat entrepreneurs poorly, which is why things like this really…